3 S.C.R. THE INCOME TAX OFFICER 'I! ARVIND N. MAFATLAL (B. P. SINHA, c. J., K. SUBBA RAO, N. RAJAGOPALA AYYANGAR, J. R. MUDHOLKAR and T. L. VENKATARAMA AIYAR, JJ.) lneome Tax-Partners of registered firm holding shares of
company as benamidars of the firm-Error in computing tax- Proceeding to rectify errors-Income tax officer, if could effect readju8tment to avoid illogicalities-lncome·tax Act, 1922( 11 of 1922), 88. 16(2), 18(5), 35.
The respondents were the four partners of a firm M, which was registered under the Indian Income Tax Act. Three of these four partners held amongst them forty shares in private limited company which was registered in the Phaltan State.
For the account year ending 30-9-1945 the Phaltan Company disclosed a net profit, but did not declare any divi· <lend out of these profits but paid income-tax and super-tax thereon.
After the merger of Phaltan State in the Indian Union, the Income-tax Officer issued notice to the Phaltan Company under s. 34 of the Act and acting under the provisions of s.23A directed that the undistributed assess- able income of the company should be deemed to have been
distributed as dividend among the shareholders. Before the date of this order, the assessment of the firm Mand the indi- vidual assessment of its four partners had been completed. In order to bring to tax the· undistributed dividend deemed to be declared under s.23A among the shareholders of the
company, notices were issued to the four partners under s.34 of the Income-tax Act. In response to the notice, the part- ners appeared and contended that the forty shares held by the three of the four partners were in fact the property of the registered firm M. This contention was accepted by the In- come-Tax Officer who thereupon treated the dividend attribu- table to the total of the forty shares as the dividend income of the firrn and proceeded to the apportion the said income
among the four partners in proportion of the ~hares which each of them held in the firm and added this to the income already assessed. In doing so however, the Income-tax Officer commi- ted an error. In rrcomputing the total income of each of these folJl" ,.ssess~es he included only the net dividend "deemed tq 196P
February t'l. Tiu lnumt T .x Officer v. iruiM N. MaftJtJal be received" by each but as again this addition he allowed a deduction of the tax paid by the company attributable to such dividend. Subc;cqL1cntly this rnic;takc
\Ya<> discovered and thereupon the [ncon1e-1ax Officer i:-sucd notice pointing out the error in including in the inco1nc the net dividend without being grossed up, \Yhilc at the same time allowing credit for the tax deemed to have br-en paid thereon, and averred
that this wa.c; a mistake apparent on the record" which he proposed to rectify under s.35 of the Act. Held, that in vic1,v of the dccbion in .M/s. Hou1rah Trading Co. v. Co,nniissioner uf Income-.1ax, it is only the
rcgistere<J shareholder::. \'/h:> arc entitled to the benefit of the credit for tax paid by the company under s.18(5) as well as tl1e cnnesponding grossing up under s.16(2). On that
basis the only p~rsons \vho were entitled to be treated as shareholders to whom the provisions of s.16(2) ands. 18(5) of the lncomc-1'ax Act \\'ere attracccd were the three part- ners in whose natne the forty shares stood registered.
Held. further, that the Income-tax Officer and Juris- diction under s.3j Eo rectify errors but not to effect merely rc-arljustmcn t ~o as to avoid the illogicality in an error which is still permitted to contint1c.
!Jehl, also, that it is not possible to correct the initial error in the procee:iings because the notice under s.35 issued tu the parties \\·hich is thr foundation of the jurisdiction to effect the rcc1ific;1tion 1 sought not the correction of the error but the perpetuation of it th'lugh. in an altered and a less objectionable frcn11 the point of vic\v of Revenue.
lJ!t:ssrs. llo1crnh 7'rading Co., Ltd. v. TM Commis1ioner of Income-tar, Calr.atlct, ll9:19 Supp. 2. S. C.R. 448 applied. CIVIL APPELLATE JuRISllICTION: C. As. Nos. 502 to 505 of 1960.
Appeals from the judgment and orders dat~d Janunry 14, 19.57 of the Bomhny High Court in Special Civil Applicn.tions Xos, 1848 to 1851 of 1956. N. D. Karkhrini8 and P. D. Men.on for the
l\ppellant (in a.II the four appeals). S. T. Desai .and J. N. Shroff for the Respon- dents. 1962. February, 27. The Judgment of the Court was delivered by AYYANGAR, J.-These four appeals are pur-
suant to certificates granted by the High Court of Bombay under Art. 133(l)(c} of the constitution and raise identical questions for consideration. 'rhe respondent in these four appeals are each
of the four partners in a firm constituted under the name of Mafatlal Gagalbhai & Sons and which was composed of Navinchandra Mafatlal, Arvind N. Mafatlal, Yoginder N. Mafatlal and Homant Mafatlal
with shares of 5/16, 3/16, 3/16. and 5/16 respectively in that firm (It has to be mentioned that Navin- chandra died subsequent to the decision of the High Court and his legal representatives have been
brought on record in Civil Appeal No. 502of19f9 but this circumstance being irrelevant we are ignor- ing it for the purposes of these appeals). The firm was registered under the Indian Income Tax Act. There
was a private limited company named Mafatlal Apte and Kantilal Limited registered under the Phal- tan State Companies Act. Ten Shares in this private company stood in the name of Navin Chandra, 10
in the name of Arvind and 20 in the name of Hamant. For the account year of the company ending Sep- . tember 30, 1945 tl:>e company disclosed a net profit of Rs. 1,09,165/-. The company, however, did not
declare any dividend out of those profits but paid income-tax and super-tax thereon. After the merger of the Phaltan State in the Indian Union and the ex- tension of the provisions of the Indian Income Tax
Act thereto, the Income Tax Officer who had jurisdic- tion over the assessment of the company, issued notice to it under s. 34 of the Indian Income Tax Act and acting under the provisions of s. ~3A thereof
directed that the undistributed assessable incom!' of the company which amounted to Rs. 68,228/- should be deell'.led to have been djstribnted as divide:nd 196! Ihe lni:om1 Tax · • O.fficer
A.•ind N. Mafatl al Ayyangar J. Tht lncuma TAK O/fl«r • Ard"d N. Maf•llaJ Ay~·an.('4" J. among the shareholders as on the date of the Gene- ral Rody Meeting of the company (i.e., on Jia.rch II
1940). Before the <late of thiH order the aHsessment of the firm of Mafatlal Gagalbhai & Sons and the individual aRscssrnent of its four partners had been compl<'td. In order to bring to tax the undistribu·
ted dividend "deemed to bo declared" under s. 23A among the shareholderR of the compan.v notices were i;;sued to tlw foul' partners under s. 3! of the Inc''llh' T;ix Act. [n response to the notice the
partners appeared and it was stated in their behalf that. the 40 shareR heir! by three of the partners in th" company were in fact thn property of the Rq;ist1·red firm and were held by them benami for
the fi:m. This eontention was acc~ptl'<I by the Income Tax Oflicer who then'upon treated the divi· d('n<l attributable to the 40 shar('s as tho dividend· income of the firm an•l proceeded to apportion the
saicl incunw among the four partners in the. propor. tion of tho shares "·hi1·h each of them held in the firm and added this to the income already assessed, Jn doing so however, the Income Tax OfficBr com-
mitt.ccl an error. In recomputing the total income of t:ach of thPoe four ass1·.ss.,t•s lw included only the net dividend "dec:mPrl to he received'' I"· ear.,h but as against thi• addition he allowed a de·;1uctio11 of
the tax paid by the company attributable to such dividend. There was no appieal again,;t these assess• mPnt orders which bocamc final. Subsequently this mistake was diR<,overcd and thereupon the Income
Tax officer issued notices tu the fuur partnerH on April 1:1, 19;)4 pointing out the error in including in the income the net. divideut without being ~rosse<l up, while at the samu time allowing credit for the
I.ax deomed to have b1•cn paid thereon. He a1·crrcd that this was a mi•t.ake apparent from the rncorclH and stated that he intun<le1l to rectify th•i •amo under s. :l;) of th<' lnc:ome Tax Act.
The four a8BCH· se1>s oi.Jj"ctcd to the rectification, but almost tho o!ltirely of the grounds on which the objection w~' based related to the legality of the original assess- ment and the assessees desired that if any rectifi-
cation was to be made it must be in relation to those items and not in regard to that for which notice had been served. The Income Tax Officer by his order dated October 12, 1955 rectified the
assessment by grossing up the newly added dividend- income by the addition of the tax deemed to have been paid by the company thereon and retained the original relief granted under 's. 18( 5) of the Act.
After unsuccessfully appealing to the higher authori- ties for relief against this rcetification the asses- sees filed writ petitions invoking the jurisdiction of the High Court under Arts. 226 and 227 of the con-
stitution for prohibiting the authorities from taking proceedings for the enforcement of the orders dated October 12, 1955. The learned Judges allowed the petitions. The Income Tax Officer thereafter moved
the High Court for certificates of fitness under Art. 133(l)(c) and these having been granted the appeals are now before us. The ground upon which the learned Judges granted• the relief to the respondents was briefly
this : The order of assessment had proceeded on the basis that the firm of Mafatlal Gagalbhai & Sons was the shareholder who had bet>n in receipt of the dividend-income and the individual partners
of the firm had been made liable for their share of the profits derived from th;s registered firm. In such circumstances the learned Judges held that what was distributed to the individual ·partners
could not be deemed to bn dividend-income within s. 16(2) of the Income Tax Act. It is to test the correctness of this construction of s. 16(2) that these appeals have been preforred.
In our opinion, however the appeals have to be dismissed· on a short ground which does not in- volve any consideration of the correctness of the constrqction adopted by the Hi$h Coqrt, of s.16(2)
196~ The ln&"mt TDX Officer v. A,vjnd N. Mafatlal • AyyanlarJ. Tiu ft1rotrl4 T11x Ofji"' v. At11ind N • .\l ojatlai 460 SUPREME OOURT REPORTS (1962] SUPP. of the Income Tax Act. This Court has held in
Messrs. Howrah Trading Co., Ltd. v. '!'he Commissioner of Income-1'm: Calwtta (1) that it is only the registe- red shareholder who is entitled to the benefit of the cr•)dit for tax paid by the co!upany under s. 18(5)
ae well as the corresponding grossing up under s. 16( 2). On that basis the only p~rsons who were entitled to ho treated as shareholders to whom the provisions of ss. 16(2) and 18(1) of the Income Tax
Act wore attracted W('re the three partnern in whose names thP 40 shares stood registered, as detailed <'Airlier. An error had therf'fore been committed by the Ineome Tax Offieer in treating the registered firm
as the owner of the shares in respect of the entire number of •IO shares. It was not this initial and fundamental error th:it was sought to be r<'ctified by tho proceedings under s. 35, hut. tho removal of
an ,inomaly in that error which continued to be affirmed; in other words the object of the proceed- ings under s. ;15 was t•> carry out to its logical con· clusion the error which had been committed in the
order of assesRment dated October 12, l!J55 paBRed after invoking the provisions of s. 34. We consider the submission of leiirned Counsel for th?: respon- dents that the Income Tax Officer had jurisdiction
under s. 3.) to rectify errors hut not to effect merely readjustments so as to avoid illogicalities in an error wlii~h is still permitted to continue is well- founded. It has furthl'r to be mentioned that it is not
possible to correct the initial error in these proceed- ings because the notice under s. 3 3 w)lich is the foundation of tho jurisdiction of the officer to effect the rectification, sou!!ht in realitv not t.he correction
of the (•rror but the 1>erpotuation of it though in an altered a11<l less nhjeetionable form from the point of view of Revenue. In thi~ connection it would ho noticccl Lh:it one of th" four
partners-¥ oginder l\fafatle.1 had no shares standing in his name and br \I) [1959J Supp. 2 s.c.R. ff!!, 3 $.C.R. the order of 'tSsessment under s. 34 he had been saddled with a liability to the extent of his 3/16th
share •in the firm, though this has been partially off- set by the credit given to him, obviously wrongly, of relief under s. 18(5) of the tax deemed to have been paid by the company on that incomes.
We therefore consider that the appeals must fail. They are accordingly dismissed but in the circumstances of this case there will be no order as to costs. Appeals dismissed. KANJI MANJI
v. THE TRUSTEES OF THE PORT OF BOMBAY (S. K. DAS, M. HIDAYATULLAH and J. c. SHAH, JJ.) Ejectment-Suit by Government or local Authority against assignees of leased land and building-Applicability of Rent Act-Jurisdiction of City Civil Court-Joint tenancy-Notice
on one tenant, if sufficient-Suit if bad for non-joinder of legal representative of the deceased joint tenant-Assignee of tenancy if bound by the terms of the original lease-Where eviction of sub-tenant not possib/,e under statute, whether a ground to defeat the rights of the Local Authorities-Bombay Rents.
Hotel and Lodging Houses Rates (Control) Act, 1947 (Bom. 57 of 1947), 88. 4, 5( 8), 15. In 1924, the Trustees of Port of Bombay granted a lease of land for ten years to a partnership firm, with the covenant that the lessee would, at their own expense construct upon the said land, certain buildings to the specifications of the trustees. It was provided inter alia that the lessee would be at liberty to remove the buildings, erected by them, within three
months after the expiration of the term. It is not clear what happened actually after the expiration of the term of ten years. In 1942, the Trustees granted to M/s. D and 0 their respective heirs,
executors, administrators and assigns, a monthly tenancy of the land together with the buildings standing thereon. It was agreed with them that on the The Income T Officer v. Aruind N. Mofatlal
Ayyangar J. 19&2 F~bruary 27.